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Generational Dynamics Web Log for 23-Aug-07
Friday's Fed move turns Wall Street from panic back to giddiness

Web Log - August, 2007

Friday's Fed move turns Wall Street from panic back to giddiness

Investors seem to have regained their old giggly confidence on Wednesday, as they pushed the market up by a little over 1% (Dow).

With respect to the countdown to September 10-21 that we've been discussing as the likely date range for a major panic, the 1% rally makes no difference at all. What is important is whether investors are getting confident enough to push the bubble up again.

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Alan Greenspan predicts the panic and crash of 2007: He's said this kind of thing before, but this time it's resonating.... (08-Sep-07)
Bernanke's historic experiment takes center stage: An assessment of where we are and where we're going.... (27-Aug-07)
How to compute the "real value" of the stock market. : And some additional speculations about stock market crashes. (20-Aug-2007)
Ben Bernanke's Great Historic Experiment: Bernanke doesn't believe that bubbles exist. His Fed policy will now test his core beliefs.... (18-Aug-07)
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On Wednesday, four major U.S. banks announced that they've taken advantage of the Fed's new bargain discount rate, and have borrowed $500 million each. One pundit on CNBC said that this marks the end of the credit crunch, since all this money is now available to lend to people. Happy days are here again. The reporters were all giddy again.

It's been a long time -- years -- since anything that's happened on Wall Street bears any real relationship to common sense. Those four loans total $2 billion, and that's a tiny fraction of the hundreds of billions of dollars in credit that was floating around just weeks ago, and even less compared to the tens of hundreds of trillions of dollars of subprime mortgage-backed securities in most organizations' portfolios. Still, it was enough to cheer up investors on Wednesday.

From the point of view of Generational Dynamics, none of this should make any difference in where we're going. Remember from the 1929 vs 2007 comparison chart that I've been posting every few days that two weeks before the 1929 crash, the Dow spiked up 6.3% That might happen again, and you can just imagine how giddy the CNBC reporters will become after that.

What we're doing is a real-time test of a theory: That the level of anxiety and panic spreads among the public at an exponential rate that is independent of historical time and place, and that therefore we can predict when a full-scale panic will occur -- sometime in the September 10-21 time frame.

So if the pundits are right, and confidence has been restored, then the test will have failed, and that would be a big surprise to me. What I expect is that the level of anxiety and panic will continue to grow exponentially, as will become apparent as soon as there appears some bad news.

So, Wednesday was such a fun, uneventful day, but we'll have to see whether that continues. (23-Aug-07) Permanent Link
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